Proposed LTC reforms may boost tax-free travel benefits

February 26, 2026 Finance Talk Valli Sarvani

Tax rules governing employee travel benefits could soon become more flexible.

The Income Tax Department has proposed changes under Rule 278 of the Draft Income Tax Rules, 2026.

These provisions aim to replace Rule 2B of the Income Tax Rules, 1962. If approved, employees may claim higher tax-exempt travel amounts under the Leave Travel Concession.

Currently, the LTC exemption remains capped at economy-class airfare for air journeys. This limit applies even if an employee travels business class.

However, the draft rules remove this economy-class restriction. Instead, the exemption will align with the travel class an employee is officially entitled to.

As a result, employees eligible for premium categories may claim benefits accordingly. Moreover, recognised public transport categories will determine eligibility where relevant.

This shift could modestly enhance the tax efficiency of employer-sponsored travel.

Importantly, the draft also revises reimbursement rules for remote destinations. At present, where public transport is unavailable, exemption links to the fare of an air-conditioned first-class rail ticket.

The proposed framework replaces this benchmark with a flat ₹30 per kilometre. The calculation will apply to the shortest travel route.

Therefore, employees visiting remote or underserved areas may find claims easier to standardise.

Additionally, the change addresses practical issues in regions lacking conventional transport options. A fixed per-kilometre ceiling simplifies documentation and reduces ambiguity.

Leave Travel Concession, known as Leave Travel Allowance in the private sector, permits tax exemption on domestic travel expenses.

However, claims must satisfy specific income tax conditions. Consequently, any relaxation in limits may benefit salaried taxpayers planning family travel within India.

The new Income Tax Act, 2025, will take effect from April 1. Meanwhile, the Draft Income Tax Rules, 2026, remain open for public feedback until February 22.

The government will notify final provisions after reviewing stakeholder responses.

If implemented in their present form, these reforms could expand flexibility for employees.

Although the financial impact may vary, the proposed rules signal a move toward modernising travel-related tax benefits.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on March 09, 2017